ASPE VS  IFRS  THE BASICSASPE VS. IFRS: THE BASICS

Presenters:ese te s:Leanne Mongiat, CATrudy Snooks, CAAdams & Miles LLPAdams & Miles LLP

A disclaimer before we begin

Although the presentation and related

A disclaimer before we begin...

Although the presentation and related materials have been carefully prepared, neither the presentation authors, firm, norneither the presentation authors, firm, nor any persons involved in the preparation and/or instruction of the materials accepts a d/o st uct o o t e ate a s acceptsany legal responsibility for its contents or for any consequences arising from its use.o a y co seque ces a s g o s use

Session OverviewSession Overview Crash course in ASPE: The Basics Crash course in IFRS: The Very Basics Key differences:

P Pl d E i Property, Plant and Equipment Leases Related party transactionsRelated party transactions Income taxes payable Financial Instruments

Example disclosures Transition differences

The Right Option for Your Company The Right Option for Your Company Closing and Questions

Crash Course in ASPECrash Course in ASPE For year-ends beginning on or after January 1,

2011 Reminder re: effective date vs. transition date

Handbook – located in Part II Retrospective - is applying a new accounting

policy to transactions, other events and conditions as if that policy had always beenconditions as if that policy had always been applied

ASPE Affects:ASPE Affects:• Fair value

P id• Prepaids• Asset retirement obligations (ARO)• Election for Property, Plant & Equipmentp y, q p• Intangibles• Employee future benefits• Stock based compensation• Stock-based compensation• Business combinations and Joint Ventures• Goodwill

G t bl• Government payables• Income taxes• Opening balance sheetp g• Cash flow statements

IFRS AffectsIFRS Affects Revenue recognition

A i i Business Combinations

E l f b fi Asset impairment Property, Plant and

Equipment

Employee future benefits Income taxes Stock based

Financial Instruments Investment property Foreign Exchange

Stock based compensation

Hedging Mining Oil & Gas Foreign Exchange

Provisions Leases

Mining, Oil & Gas Companies

Joint VenturesConsolidations Intangible Assets

Related Party Transactions

Consolidations Earnings Per Share Opening balance sheetg

Crash Course in IFRSCrash Course in IFRS For year-ends beginning on or after January 1,

2011 Reminder re: effective date vs. transition date

Entities with rate regulated activities have the option to defer changeover to January 1, 2012

Handbook – located in Part I Both private companies and Not-For-ProfitBoth private companies and Not For Profit

organizations have the option to adopt IFRS There is significantly more note disclosure g y

required under IFRS in almost every area including accounting policies

Crash Course in IFRS  TermsCrash Course in IFRS ‐Terms

IFRS – International Financial Reporting p gStandards (issued post April 2001)

IAS – International Accounting Standards (issued pre April 2001)

IASB – International Accounting Standards Board

IFRIC – International Financial Reporting Interpretations Committee

SIC – Standing Interpretations Committee

Crash Course in IFRS Cont’dCrash Course in IFRS Contd When transitioning to IFRS most standards and

li i ill d t b li d t ti lpolicies will need to be applied retrospectively Optional exemptions to retrospective application:

B i bi ti Business combinations Employee benefits LeasesLeases Borrowing costs, etc.

Mandatory exemptions to retrospective application:y p p pp Derecognition of financial assets and financial liabilities Hedge accounting Non controlling interests and Non-controlling interests, and Estimates

IFRS and Presentation ItemsIFRS and Presentation Items

IFRS permits departures from standards if they p p ywould make the F/S misleading

IFRS does not allow comparative information to be omitted in the rare circumstances when it is not meaningful

When applying an accounting policy retrospectively, IFRS requires a financial position for the earliest comparati e period possiblefor the earliest comparative period possible

IFRS and Presentation Items Cont’dIFRS and Presentation Items Contd

Complete set of F/S under IFRS include:p A statement of financial position A statement of comprehensive income A statement of change in equity A statement of cash flows Note disclosure

An entity may choose different titles for these statements

IFRS and Presentation Items  Cont’dIFRS and Presentation Items – Contd The I/S section under IFRS is less specific as to

the items that need to be shown on the I/S IFRS (IAS 1) does not allow for disclosure on

“extraordinary items”“extraordinary items” Disclosure of authorization for issue – an entity is

to disclose the date the F/S were authorized andto disclose the date the F/S were authorized and by whom

Current assets and current liabilities must be in order of liquidity (IAS 1)

Concept of OCI (Other Comprehensive Income)

Property  Plant and Equipment (PPE)Property, Plant and Equipment (PPE) Relevant sections IAS 16 and ASPE 3061

IFRS d l ith th f ll i t id th f IAS 16 IFRS deals with the following outside the scope of IAS 16 Investment Property - IAS 40 and Biological assets (Agriculture) - IAS 41

PPE (d f’ ) t ibl it th t PPE (def’n) – are tangible items that(a) Are held for use in production or supply of goods or services,

for rental to others, or for administrative purposes; and(b) A t d t b d f th i d(b) Are expected to be used for more than one period

Cost comprises:( ) Purchase price including import duties non refundable(a) Purchase price, including import duties, non-refundable

taxes, less discounts(b) Amounts for bringing the asset to the location and making it

operationaloperational (c) The initial estimate of dismantling and removing an item and

restoring the site.

PPE Cont’dPPE Contd

Measurement subsequent to initial recognition: -q gThere are 2 options:

(a) Cost Model – PPE shall be carried at its costs less any accumulated depreciation and accumulated impairment losses

(b) Revaluation Model – PPE whose FV can be reliably measured shall be carried at fair value (on the date of re al ation) less an s bseq ent(on the date of revaluation) less any subsequent accumulated depreciation and accumulated impairment losses Revaluations should be doneimpairment losses. Revaluations should be done regularly

PPE   Cont’dPPE  ‐ Contd

The method chosen must be applied to an entire ppclass of asset

If an asset's carrying amount is increased as a result of a revaluation, the increase shall be recognized in OCI and accumulated in equity under the heading of revaluation surplus. Ho e er the increase shall be recogni ed inHowever, the increase shall be recognized in P&L to the extent that it reverses a revaluation decrease of the same asset previouslydecrease of the same asset previously recognized in P&L.

PPE  Amortization vs  DepreciationPPE – Amortization vs. Depreciation

ASPE and IFRS– amortization method chosen has to be rational and systematic

IFRS – Includes above, however, there is a direct relationship between the depreciation method chosen and the pattern or expectation that the future economic benefits are to be consumed by a compan o er the life of the PPEa company over the life of the PPE

PPE  Amortization Cont’dPPE – Amortization Contd

Amortization vs. DepreciationASPE IFRS

Amortization charged is the greater of:-The cost less salvage value (estimated net realizable value at the end of its life)

Depreciation charged is:- The cost less residual value over the useful life of the assetnet realizable value at the end of its life)

over the estimated life- The cost less residual value over the useful life of the asset.

useful life of the asset

Estimates on the useful life, method of amortization are reviewed periodically and residual value only when an event

Estimates of useful life, method of depreciation and residual values are reviewed at each reporting date (at least)and residual value only when an event

occurs reviewed at each reporting date (at least) or when expectations deviated from previous estimates

PPE  Component accountingPPE – Component accounting

Component accounting exists under ASPE and p gIFRS

Example of component accounting: A ship and that is separate into the following with the

following estimated useful lives: The body of the ship – 30 years Engine – 15 years

F it d fi t th hi 10 Furniture and fixtures on the ship – 10 years

PPE  DisclosurePPE – Disclosure

For each Class of PPE the following shouldFor each Class of PPE the following should be disclosed: the measurement basis the measurement basis the depreciation methods the useful life or depreciation ratesgross carrying amt and accumulatedgross carrying amt and accumulated

depreciation

PPE  Disclosure Cont’d A reconciliation of the carrying amt at the

b i i d d f th i d h i

PPE – Disclosure Contd

beginning and end of the period showing: additions assets classified as held for sale or included in assets c ass ed as e d o sa e o c uded

disposal group classified as held for sale acquisition through business combinations increases /decreases resulting from revaluations increases /decreases resulting from revaluations

and from impairment losses impairment losses recognized in P&L impairment losses reversed in P&L depreciation net exchange difference arising on translation of net exchange difference arising on translation of

F/S other changes

PPE  Disclosure Cont’dPPE – Disclosure Contd Additional disclosure: the existence and amounts of restrictions on title and

PPE pledged as security the amount of expenditures recognized in the carrying

amount of an item of PPE in the course of its constructionconstruction

the amount of contractual commitments related to PPE if not disclosed separately in the statement of if not disclosed separately in the statement of

comprehensive income, the amount of compensation from third parties for items of PPE that were impaired, p plost or given up that is included in profit or loss

PPE  Disclosure Cont’dPPE – Disclosure Contd If items of property, plant and equipment are

revalued, the following disclosure is needed: the effective date of the revaluation whether an independent valuer was used the methods and significant assumptions in estimating

the FVthe FV the extent to which the FV was determined directly by

reference to observable prices in an active marketp the carrying amount that would have been recognized

had the assets been carried under the cost model the revaluation surplus, indicating the change for the year

and any restrictions on distributions to shareholders

PPE  Final ThoughtsPPE – Final Thoughts

Topics related to PPE not covered include asset pretirement obligations, PPE impairments and non-monetary transactions involving PPE

ASPE 3063 and IAS 36 – Impairment of Long-lived Assets

LeasesLeases IAS 17 and ASPE 3065

IAS 17 – apply to all leases except equipment used to explore for or use minerals, oil, natural gas and non-

ti d t i li i tregenerative resources and certain licensing agreements

Both IFRS and ASPE consider whether the benefits and risks of ownership have transferred when classifying leases.

New definitions and terminology under IFRS FINANCE LEASE – a lease that transfers substantially all the

risks and rewards of ownership. Title transfer is not pmandatory.

Leases  Cont’dLeases  Contd

Under IFRS leases have to be classified as either an operating lease or a finance lease

Guidance to determine if the risks and benefits of an asset have been transferred is provided including: Ownership transfer by the end of the lease The lessee has an option to purchase the asset for a price

below FVThe term of the lease is for the majority of the life of the The term of the lease is for the majority of the life of the asset

At inception, the PV of the minimum lease pymts equalsAt inception, the PV of the minimum lease pymts equals substantially all of the FV

The asset is of such a specialized nature

Leases Cont’dLeases Contd Lease classifications can only be changed if the

provisions of the lease have been changed Changes in estimates related to economic life,

residual value etc do not give rise to a newresidual value , etc do not give rise to a new lease classification

Under IFRS there is no specific guidance on how Under IFRS there is no specific guidance on how to account for the implications when lease terms are modified

There are specific standards for land and building leases – IAS 17 – 15A - 19

Capital/Finance Leases  Recording by LesseeCapital/Finance Leases – Recording by Lessee

The basic process of recording a capital /finance p g please is consistent under ASPE and IFRS

An asset and obligation is recorded and represents the lower of the PV of the minimum lease pymts or the FV of the asset

The asset is then amortized into operations similar to other assets in the same class and the

bli ti i d d b tobligation is reduced by payments

Capital/Finance Leases – Recording by Lessee ContinuesContinues

ASPE IFRSDiscount rate:The discount rate equals the lower of:-lessee’s rate for incremental

Discount rate:A Company is REQUIRED to use the implicit rate if it is practical to do so. If

borrowing and-Implicit interest rate

it is not practical a company can use incremental borrowing rate.

Amortization period of asset:If th t th t k

Amortization period of asset:If th l l titl i t t d tIf there are no terms that make

reference to legal ownership passing or no BPO then the asset is amortized over the lease term instead of the

If the legal title is not expected to transfer, then the asset is amortized over the shorter of the lease term or the useful life of the asset.

expected life of the assetDirect initial costs:Not specifically addressed.

Direct initial costs:Costs incurrent on initial set-up are capitalized as part of the asset.

Leases  Finance Lease Disclosure (Lessee)Leases – Finance Lease Disclosure (Lessee) For each class of asset, the net carrying amount at year-end

A ili ti b t th t t l f f t i i l A reconciliation between the total of future minimum lease payments at year-end, and their present value (PV) for each of the following periods:

1 year; 1 to 5 years; and later than 5 years 1 year; 1 to 5 years; and later than 5 years contingent rents recognized as an expense in the period. the total of future minimum sublease payments expected to

b i d d ll bl bl t th d fbe received under non-cancellable subleases at the end of the reporting period

a general description of the lessee's material leasing t i l di b t t li it d t th f ll iarrangements including, but not limited to, the following:

the basis on which contingent rent payable is determined; the existence and terms of renewals or purchase options,

l ti l descalation clauses; and restrictions imposed by lease arrangements, such as

dividends, additional debt and leases

Leases  Final ThoughtsLeases – Final Thoughts

Impairment – IAS 36 deals with impairment of p please assets

First time adoption issues are covered in IFRIC 4 and IFRS 1

There is an optional exemption to retrospective application for leases Transition date – a lessee or lessor determines the

l ifi ti f lclassification of a lease

SO.....QUESTIONS?Anyone? 

COFFEE TIME!

AND WE’RE BACK!

Related party transactionsRelated party transactions

ASPE 3840 and IAS 24 Identification of related parties is the same,

except that IFRS specifically identifies post-employment benefit plans as related

Measurement – IFRS provides no specific guidance on measurement whereas ASPE has a decision tree for carrying vs. exchange amounts

Disclosure – IFRS requires disclosure of all related parties irrespective of transactions or balancesbalances

Related Party Transactions  IFRS DisclosureRelated Party Transactions – IFRS Disclosure

Transactions require separate disclosures by q p ycategory: The parent; Entities with joint control/significant influence; Subsidiaries; Associates; Joint ventures;

K t l f th tit it Key management personnel of the entity or its parent and;

Other related parties Other related parties

Related Party Disclosures  IFRSRelated Party Disclosures ‐ IFRS Similar to ASPE with a description of the nature of the

transaction amounts terms of repayment etctransaction, amounts, terms of repayment etc. Additional disclosures are required for the following:

Key management personnel compensation Provision for doubtful debts related to outstanding balances

with related parties Expense recognised during the period in respect of bad or

doubtful debts due from related partiesdoubtful debts due from related parties IFRS does provide some exemptions regarding

government control Additional disclosure requirements in: Additional disclosure requirements in:

IFRIC 17 – Distribution of Non-Cash Assets to Owners IAS 27 – Consolidated financial statements

IAS 28 I t t i A i t d IAS 28 – Investments in Associates; and IAS 31 – Interest in Joint Ventures

Income Taxes  Some Differences

ASPE

Income Taxes – Some Differences

IFRS

Includes all taxes Including refundable

Includes all taxes No specific guidance Including refundable,

AMT and rate regulated

No specific guidance for refundable, AMT or rate regulatedM t d if

Probable is defined as greater than 50%

Must record if probable (no specific definition indicated)

Classification – current and non-current for future taxes

Classification – non-current for all deferred taxesfuture taxes taxes

Income Taxes  Methods

ASPE

Income Taxes ‐Methods

IFRS

Choice of: taxes payable method;

Must record both: Current taxes asset taxes payable method;

or Future income taxes

Current taxes - asset or liability; and

Deferred taxes as utu e co e ta esmethod

e e ed ta es asnon-current assets or liabilities

Income Taxes  MethodsIncome Taxes –Methods The taxes payable method is a method of

accounting under which an enterprise reports as an expense (income) of the period only the cost (benefit) of current income taxes for that period, ( ) p ,determined in accordance with the rules established by taxation authoritiesThe future income taxes method is a method of The future income taxes method is a method of accounting under which an enterprise reports as an expense (income) of the period the cost (benefit) of current income taxes and the cost (benefit) of future income taxes, determined in accordance with the rules established by taxation authoritiesy

Income Taxes  DefinitionsIncome Taxes ‐Definitions Temporary differences are differences between the

tax basis of an asset or liability and its carrying amount in the balance sheet. Temporary differences may be either:y (i) Deductible temporary differences, which are

temporary differences that will result in deductible amounts in determining taxable income of future periodsamounts in determining taxable income of future periods when the carrying amount of the asset or liability is recovered or settled; or

(ii) Taxable temporary differences which are (ii) Taxable temporary differences, which are temporary differences that will result in taxable amounts in determining taxable income of future periods when the carrying amount of the asset or liability is recovered orcarrying amount of the asset or liability is recovered or settled

Income Taxes  Disclosures  ASPE

Taxes Payable

Income Taxes – Disclosures ‐ASPE

Future Taxesy

Current income tax exp (benefit)

Current income tax exp (benefit)

Reconciliation Amount and timing of

capital gains reserves or i il f 5

Future income tax exp (benefit)

Amount and timing of i l isimilar reserves for 5

years Unused income tax losses

CF d d dit

capital gains reserves or similar reserves for 5 yearsU d i t lCF and unused credits

Portion of income tax related to transactions h d dit d t

Unused income tax losses CF and unused credits

Portion of income tax l t d t t ticharged or credited to

equityrelated to transactions charged or credited to equity

Income Taxes  Disclosures  IFRSIncome Taxes – Disclosures ‐ IFRS Disclose separately the major components of tax

expense(income) included in the determination of the profit(loss) for the period, including: Current tax expense(income);Current tax expense(income); Adjustments recognized in the year for current tax of

prior periods;Amount of deferred tax expense(income) relating to Amount of deferred tax expense(income) relating to changes in tax rates or the imposition of new taxes;

Amount of benefit arising from previously unrecognized t l t dit t diff f i i dtax loss, tax credit or temp difference of a prior period that is used to reduce current tax expense;

Likewise for deferred tax expense; Deferred tax expense arising from the write-down or

reversal of a previous write-down of a deferred tax asset

Financial InstrumentsFinancial Instruments

ASPE 3856 and IFRS 7, IAS 32 and IAS 39, Differences exist for:

Scope – IFRS includes many items outside of the p yscope for ASPE such as investment companies, certain types of contracts, and certain types of derivatives and insurance contractsderivatives and insurance contracts

Classification – IFRS requires classification into loans and receivables, held-to-maturity, fair value , y,through profit or available –for-sale, financial liabilities measured at amortized costCl ifi i & i i li bili Classification & presentation– equity vs. liability

Measurement – fair value, F/X, impairments

Financial Instruments  ClassificationsFinancial Instruments ‐ Classifications Taken directly from IAS 39 paragraph 9

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market

Held-to-maturity investments (HTM) are non-derivative financial assets with fixed or determinable payments and fixed maturity that

tit h th iti i t ti d bilit t h ld t t itan entity has the positive intention and ability to hold to maturity

Available-for-sale (AFS) financial assets are those non-derivative financial assets that are designated as available for sale or are notfinancial assets that are designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.

Fair value through profit or loss is a financial asset (liability) that would otherwise be classified as AFS except that they are derivatives.

EXAMPLESWho’s on first? What’s on second? Where did third go?

Transition ImplicationsTransition Implications Impact on the bottom line

Subsequent impact on performance compensation, ratios and bank covenants, investor relations, dividend distributionsdividend distributions

Potential for increased volatility of reported results (fair value accounting)

Volume and complexity of financial disclosures (ASPE vs. IFRS)

Transparency and comparability to other entities Competitors, suppliers, customers etc.

Transition Steps

ASPE

Transition Steps

IFRS

Identify, Analyze, Determine, Implement

Identify, Analyze, Determine, ImplementDetermine, Implement

Create opening balance sheet (retrospective

Create opening balance sheet (retrospective treatment)

treatment) Recognize assets &

liabilities required under

) Recognize assets &

liabilities required under IFRSliabilities required under

ASPE Re-measure and

l if di t

Remove those balances not complying with IFRS

Re-measure and reclassify di t IFRS (reclassify according to

ASPE (as necessary)according to IFRS (as necessary)

The Right Option for Your Company: ASPE vs  IFRSThe Right Option for Your Company: ASPE vs. IFRS

Most private entities are expected to transition p pfrom current generally accepted accounting standards (GAAP) to ASPE

Facts to consider Current operations (your target markets); Future plans (IPO); and Users of the financial statements (investors, lenders,

etc)etc).

ARE WE THERE YET?www.adamsmiles.comLeanne Mongiat – lmongiat@adamsmiles.comT d  S k   k @ d ilTrudy Snooks – tsnooks@adamsmiles.com